Tuesday 13 October 2026
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IMF urges UK to ‘stay the course’ on fiscal repair as growth forecast upgraded

Silvana Tenreyro backs Healey’s consolidation plan but warns against broad energy subsidies ahead of budget

By LineZotpaper
Published
Read Time2 min
Sources2 outlets
The International Monetary Fund’s top economist has urged Britain’s Chancellor John Healey to continue repairing the public finances, as the fund upgraded its UK growth forecast to 1.3% for 2026 but cautioned that high oil prices and rising interest rates could slow the economy next year. Silvana Tenreyro, the IMF’s economic counsellor, spoke at the launch of the twice-yearly World Economic Outlook in Bangkok, little more than a fortnight before Healey delivers his first budget.

The IMF has lifted its UK growth forecast for this year by 0.3 percentage points to 1.3%, following stronger-than-expected GDP growth of 0.6% in the first quarter and 0.5% in the second quarter. The Office for National Statistics has pointed to the expansion of AI-related businesses as one factor behind the upside surprise.

However, the IMF cut its 2027 growth forecast modestly to 1.2% from 1.3%, warning that “prolonged high oil prices and rising interest rates” were likely to weigh on consumption and investment. “The UK has already started a consolidation process,” Tenreyro said. “The message for the UK is simply, stay the course.”

Tenreyro, a former member of the Bank of England’s monetary policy committee, noted that Britain “stands out” among G7 countries in having a plan to narrow its deficit. Her advice comes as Healey faces pressure to announce a generous energy support package in the budget, before an expected sharp rise in energy bills in January. In its World Economic Outlook, the IMF advised member governments against across-the-board subsidies, saying any support should be “temporary, targeted and non-distortionary”.

Responding, Healey said: “Conflict in the Middle East and Europe is hitting people in the UK and around the world. But Britain’s economy is showing strong international resilience in the face of these challenges.”

The Bank of England’s nine-member monetary policy committee is now widely expected to raise the policy rate at its November meeting, echoing similar moves by the Federal Reserve, European Central Bank and Bank of Japan. Mortgage rates in the UK have already risen as markets revise up expectations of future inflation and interest rates following the re-escalation of the Middle East conflict in the summer.

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Analysis

Why This Matters

  • The IMF’s endorsement of Healey’s fiscal consolidation strengthens his hand as he prepares his first budget, but the advice against broad energy subsidies puts him in tension with calls for relief ahead of January’s expected energy price rise.
  • The upgraded growth forecast provides some political cover, but the projected slowdown in 2027 and the likely November rate rise from the Bank of England will keep pressure on household finances.
  • The outcome of the budget will signal the UK government’s priorities on fiscal discipline versus cost-of-living support, and may influence investor confidence in UK assets.

Background

Chancellor John Healey is preparing his first budget, due in little more than a fortnight. The UK economy has performed better than expected in early 2026, partly driven by AI-related business growth. However, higher oil prices linked to the Middle East conflict and rising long-term interest rates are creating headwinds. The Bank of England is expected to raise rates in November, following similar moves by other major central banks. Healey faces particular pressure to address energy costs after forecasts of a sharp rise in the energy price cap in January.

Key Perspectives

IMF and Chancellor Healey: Tenreyro’s advice to “stay the course” supports the government’s existing consolidation plans. Healey emphasises the UK’s “strong international resilience” and the need to repair public finances. Proponents of energy support: Although not named directly in the report, there is clear political pressure for a generous energy support package to help households and businesses facing higher bills this winter. The IMF warns explicitly against across-the-board subsidies, preferring targeted help. Critics and sceptics: The IMF’s warning that growth will “edge down” in 2027 and that the global economy “could soon test the limits of resilience” underlines the fragility of the recovery. If Healey hews too closely to austerity, he risks stifling growth and worsening the cost-of-living crisis.

What to Watch

  • The contents of Healey’s budget, expected within a fortnight, particularly any energy support measures and their targeting.
  • The Bank of England’s November rate decision and accompanying economic projections.
  • The trajectory of oil prices and the energy price cap announcement for January 2027.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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